WEBVTT - Revenge of the Hedge Funds 0:00:13.880 --> 0:00:17.760 Hello, and welcome to What Goes Up, a weekly markets podcast. 0:00:18.079 --> 0:00:20.240 My name is Mike Reagan. I'm a senior editor at 0:00:20.239 --> 0:00:23.880 Bloomberg and I'm Aldana Higher across asset reporter with Bloomberg. 0:00:24.480 --> 0:00:27.479 This week on the show, well, the Federal Reserved just 0:00:27.680 --> 0:00:31.040 isn't messing around anymore. This week, the Central Bank raised 0:00:31.080 --> 0:00:34.520 its benchmark interest rate by three quarters of a percentage point. 0:00:35.159 --> 0:00:39.080 That's the biggest increase since way back when all my 0:00:39.120 --> 0:00:40.840 hair was still browned and I was just a cub 0:00:40.920 --> 0:00:44.280 reporter covering school boards and car crashes out of newspaper. 0:00:45.240 --> 0:00:48.720 And while markets initially reacted positively to the feds aggressive 0:00:48.760 --> 0:00:52.920 inflation fighting efforts after the decision on Wednesday, well something 0:00:53.000 --> 0:00:55.600 resembling a car crash broke out the following day, with 0:00:55.640 --> 0:00:59.480 both stocks and bonds tanking violently. We'll be joined by 0:00:59.520 --> 0:01:01.880 a chief in usmen strategists to the sect what is 0:01:01.920 --> 0:01:05.040 freaking out markets and what it all means going forward. 0:01:05.760 --> 0:01:08.680 But first, Bill Donna, I have to say I think 0:01:08.680 --> 0:01:12.679 regular listeners of the podcast no that I can't resist 0:01:12.680 --> 0:01:16.319 a good gimmick. Yeah, yeah, I know. And and my 0:01:16.440 --> 0:01:19.480 latest gimmick was that if we got more ratings and 0:01:19.560 --> 0:01:22.320 reviews on the show. I think I said if we 0:01:22.400 --> 0:01:24.640 got the three hundred, that we would reveal your your 0:01:24.680 --> 0:01:28.959 high school nickname. Um. What I did not anticipate is 0:01:29.040 --> 0:01:33.000 that in those ratings and reviews you would receive an 0:01:33.000 --> 0:01:36.840 actual marriage proposal. Yeah. I saw them in the in 0:01:36.920 --> 0:01:45.440 the Apple UH podcast reviews. By the way, you accepted, Yeah, 0:01:45.680 --> 0:01:48.840 I didn't accept. I don't know who it is because 0:01:48.840 --> 0:01:52.600 they I think they posted under UH like a user name, 0:01:52.720 --> 0:01:56.840 isn't their name? Yeah. The bad news for that listener is, 0:01:56.880 --> 0:01:59.520 I'm sorry, Bill, Donna has already had happily married and 0:01:59.520 --> 0:02:02.800 and further more, well, Donna will not even allow me 0:02:02.840 --> 0:02:06.160 to join her professional network on LinkedIn. So I don't 0:02:06.240 --> 0:02:10.399 I think your chances of getting a marriage proposal accepted 0:02:10.560 --> 0:02:14.400 through the comments on Apple podcast. While I admire the effort, 0:02:14.880 --> 0:02:18.320 you know, shooters got to take their shot, I do 0:02:18.440 --> 0:02:22.280 not suppose this one will be accepted. I went on 0:02:22.320 --> 0:02:25.880 LinkedIn after you called me out for not accepting you, 0:02:26.040 --> 0:02:29.560 and I had one fifty eight invites, So you're not alone. 0:02:30.360 --> 0:02:33.240 I accepted one of them, like there was somebody I 0:02:33.280 --> 0:02:37.839 really liked. Yeah, this one of them. Okay, another Bloomberg reporter. Yeah, 0:02:37.880 --> 0:02:40.799 you know this is gonna sound like sponsored content from Lincoln. 0:02:40.840 --> 0:02:42.920 I'm not even really a big LinkedIn guy. I just 0:02:43.000 --> 0:02:45.560 checked my my notifications to see if anyone's yelling at 0:02:45.560 --> 0:02:47.760 me or complaining about something they probably I was like, 0:02:48.160 --> 0:02:50.600 I was like someone Tagg Fildata and I go and 0:02:50.600 --> 0:02:52.680 I'm looking at Bill Donna's page. It's like, oh second, 0:02:52.720 --> 0:02:55.480 I'm a second. Yeah, you're not going first. You're not 0:02:55.639 --> 0:02:59.280 like a runner up member of your of your professional network. 0:02:59.400 --> 0:03:02.919 You know who's first in the first year, our guest 0:03:03.080 --> 0:03:08.040 our guests this week. Oh that's great. Yeah, but I 0:03:08.080 --> 0:03:10.480 do want to bring in Anastasia emiro So. She's the 0:03:10.560 --> 0:03:14.280 chief investment strategist at I Capital. Anastasia, thank you for 0:03:14.360 --> 0:03:16.760 joining us again. Good to talk to your with with 0:03:16.800 --> 0:03:19.280 your Modanna and Mike, and Mike I would be happy 0:03:19.360 --> 0:03:22.200 to accept. He was the first connection on my professional network. 0:03:22.960 --> 0:03:26.440 There you can have some friend. That's fantastic. You're one 0:03:26.639 --> 0:03:33.400 one friend. But Anastatia, you've been on the podcast before. 0:03:33.800 --> 0:03:36.560 You actually have changed jobs since the last time you 0:03:36.600 --> 0:03:38.680 were on, so I was hoping you could just sort 0:03:38.720 --> 0:03:41.240 of start out telling us about your new role in 0:03:41.240 --> 0:03:45.320 your new shop. Sure, well, I am a chief investment 0:03:45.360 --> 0:03:48.600 strategist at I Capital, have enjoyed from JP Morgan actually 0:03:48.600 --> 0:03:51.920 about a year ago. And you know, I Capital is 0:03:51.960 --> 0:03:55.840 really the global alternative investment platform, and we are on 0:03:55.880 --> 0:03:58.280 a mission to make it easier for more and more 0:03:58.360 --> 0:04:01.640 investors to access all round of investments. And you know, 0:04:01.800 --> 0:04:05.000 this year in particular has been a case in point white. 0:04:05.000 --> 0:04:08.040 It's so important to think beyond the sixty forty. You know, 0:04:08.080 --> 0:04:10.040 I wrote this outlook in the beginning of the year 0:04:10.160 --> 0:04:13.880 that called for higher kernel rates and lower potential reference 0:04:14.320 --> 0:04:16.080 and I don't think any of us would have guessed 0:04:16.080 --> 0:04:18.240 that the kernel rate was going to end up being 0:04:18.279 --> 0:04:20.800 a point six percent inflation and the returns for the 0:04:20.800 --> 0:04:24.360 sixty forty um, you know, just got dectimated. So this 0:04:24.480 --> 0:04:26.680 is why, and I kept all the focus on things 0:04:26.680 --> 0:04:31.160 like private equity, private credit, real estate and increasingly allocating 0:04:31.200 --> 0:04:33.840 to digital assets as well. So you know, my role 0:04:33.920 --> 0:04:36.240 as a chief investment strategist is really trying just to 0:04:36.320 --> 0:04:40.440 help investors understand what alternatives are the right ones for 0:04:40.640 --> 0:04:44.040 this particular part of the business ycle you know, and 0:04:44.080 --> 0:04:46.040 the stage. I want to get your thoughts on all 0:04:46.040 --> 0:04:49.120 this recent market action. But um, just to follow on 0:04:49.279 --> 0:04:51.560 that notion of of how you're sort of interacting with 0:04:51.640 --> 0:04:54.920 cients these days. I think it was an interesting period 0:04:55.680 --> 0:04:59.120 after the financial crisis, and we just had this almost uninterrupted, 0:04:59.680 --> 0:05:03.680 uh all run in equities. UM. It seemed to be 0:05:03.760 --> 0:05:08.200 almost uh maybe this is over dramatic, but almost an 0:05:08.279 --> 0:05:11.599 existential threat to the hedge fund industry. You know that 0:05:11.720 --> 0:05:14.760 the line just kept going up. UM. All of the 0:05:14.839 --> 0:05:17.560 sort of the best strategies started to become turned into 0:05:17.640 --> 0:05:20.400 factors that you could use in in ETFs and passive 0:05:20.520 --> 0:05:24.360 passive vehicles. But I do feel like this nasty market 0:05:24.440 --> 0:05:28.080 action this year UM sort of flips the switch a 0:05:28.120 --> 0:05:32.760 little bit turn turns the narrative back UM and hedge funds. 0:05:33.320 --> 0:05:35.839 You know, while we certainly see a lot of headlines 0:05:35.880 --> 0:05:39.800 about some that are struggling, uh in aggregate I I 0:05:40.279 --> 0:05:42.560 you know, the indexes I looked at, they are outperforming 0:05:42.560 --> 0:05:45.960 pretty significantly, still not you know, up a lot for 0:05:46.000 --> 0:05:48.560 the year, but losing less from from a sort of 0:05:48.560 --> 0:05:53.000 an aggregate index level. Has it sort of revived the 0:05:53.080 --> 0:05:56.640 demand for for hedge funds, particularly based on on what 0:05:56.680 --> 0:06:00.320 you talked with with your clients. Absolutely, how is Mike? 0:06:00.480 --> 0:06:02.400 And this was part of our outlook as well as 0:06:02.400 --> 0:06:05.480 we anticipated this being a much much better environment for 0:06:05.680 --> 0:06:08.479 hedge funds that we get clients interested. And the reason 0:06:08.560 --> 0:06:10.520 for that, I mean, you said it's spot on for 0:06:10.560 --> 0:06:13.080 the last ten years. I mean, really, all you had 0:06:13.120 --> 0:06:14.800 to be is risk on for the most part, with 0:06:14.880 --> 0:06:17.000 a few exceptions, and you buy the dip along the way, 0:06:17.000 --> 0:06:19.880 but mostly if you're invested in stocks and hi yield bonds, 0:06:19.880 --> 0:06:22.680 he probably did just find so he didn't actually need 0:06:22.839 --> 0:06:25.760 hedge dequity and portfolio and you didn't really need you know, 0:06:25.800 --> 0:06:29.400 relative value trade and so forth. But that changed dramatically 0:06:29.440 --> 0:06:32.400 this year, and we anticipated this year to be a 0:06:32.480 --> 0:06:35.600 year of higher velocity and higher volatility and void do 0:06:35.720 --> 0:06:38.000 we get it? And so that's what I think has 0:06:38.040 --> 0:06:40.520 been so narrative changing for hedge funds is all of 0:06:40.600 --> 0:06:43.640 a sudden, there's equity volatility to trade, there is the 0:06:43.640 --> 0:06:46.920 ext income volatility to trade. There's a lot of macro 0:06:47.120 --> 0:06:49.480 factors are in the driver's seat. So if you look 0:06:49.520 --> 0:06:51.760 at the hedge fund performance, Mike, you said it, but 0:06:51.839 --> 0:06:55.400 the overall hedge fund h f R I industries, for example, 0:06:55.440 --> 0:06:58.000 they're out performing the market nicely. But even if you 0:06:58.200 --> 0:07:02.359 further dissect within that the global macro funds are doing 0:07:02.440 --> 0:07:05.240 really well. And within that, you know, you have some 0:07:05.440 --> 0:07:08.880 really top core child winners that are really attracting client interest. 0:07:09.200 --> 0:07:13.360 If you look at relative value hedge funds, arbitrage strategies, um, 0:07:13.480 --> 0:07:17.560 all of those are delivering above market returns. And also 0:07:17.680 --> 0:07:20.360 quant quant is actually working this year as well. So 0:07:20.960 --> 0:07:24.080 I do think in this environment where nothing seems to 0:07:24.080 --> 0:07:27.080 be working, investors are looking for something that is and 0:07:27.200 --> 0:07:30.440 right now that is in the hedge fund space. And Anastasia, 0:07:30.520 --> 0:07:32.960 just to bring us back to the big event this week, 0:07:33.000 --> 0:07:36.280 which obviously was the FED, actually was super excited for 0:07:37.080 --> 0:07:40.360 the Wednesday pressor because you know, we were all having 0:07:40.440 --> 0:07:42.080 this debate about whether or not we were going to 0:07:42.160 --> 0:07:44.520 get fifty or seventy five, and we had some people 0:07:44.560 --> 0:07:48.240 calling for a hundred basis point hike. So can you 0:07:48.280 --> 0:07:50.680 just lay out for our audience what exactly happened with 0:07:50.680 --> 0:07:54.400 the FED this week, what we heard from j Powell. Yeah, well, 0:07:54.440 --> 0:07:56.480 even what happened earlier in the week, because we got 0:07:56.480 --> 0:07:59.560 a massive pivot from the fedt during the time when 0:07:59.600 --> 0:08:02.280 this was supposed to be a no communication and time frame, 0:08:02.360 --> 0:08:04.600 and we got a pretty strong hand that they're going 0:08:04.640 --> 0:08:07.280 to go for seventy five basis points, and you know, 0:08:07.320 --> 0:08:10.640 in retrospect, it makes a lot of sense because the 0:08:10.680 --> 0:08:13.120 problem with inflation for the Fed right now is they 0:08:13.200 --> 0:08:16.320 can't just focus on the core because the headline inflation, 0:08:16.440 --> 0:08:19.800 the higher gas to lead prices, the higher food prices, 0:08:19.840 --> 0:08:23.360 that's was driving consumer sentiment, and that's was driving consumers 0:08:23.360 --> 0:08:28.000 and expectations of future inflations. So as those expectations surge, 0:08:28.160 --> 0:08:31.160 the FED had to react to it. So here's my 0:08:31.680 --> 0:08:35.080 couple of takes on you know, what do we think 0:08:35.080 --> 0:08:38.400 now that they have hike seventy five basis points. You know, 0:08:38.440 --> 0:08:40.840 first of all, we did anticipate this meeting to be 0:08:41.040 --> 0:08:44.360 a howkish one, and it definitely definitely was. But I 0:08:44.360 --> 0:08:46.280 don't think we can say that it was a hawkish 0:08:46.280 --> 0:08:49.600 surprise to the markets, and you saw how the markets 0:08:49.600 --> 0:08:53.240 initially reacted to the path of increases. The reason I 0:08:53.280 --> 0:08:56.000 say that is a lot of the pricing market price 0:08:56.040 --> 0:08:59.920 saying was already in place before that meeting. And if 0:09:00.040 --> 0:09:02.840 you think about what the markets have been pricing in 0:09:02.960 --> 0:09:07.600 through February, it's close to four percent UH in the 0:09:07.679 --> 0:09:09.960 FED funds rate, So I think a lot of that 0:09:10.559 --> 0:09:13.680 rate increases was already baked in, and that's perhaps why 0:09:13.720 --> 0:09:16.640 the FED was emboldened to do this. But my other 0:09:16.720 --> 0:09:20.640 takeaway not a Hawker surprise, but I think a significant 0:09:20.840 --> 0:09:24.160 move towards restoring the Fed's credibility. I mean, if when 0:09:24.200 --> 0:09:27.160 you look at eight point six percent inflation or six 0:09:27.200 --> 0:09:29.719 percent core inflation, and you'll if you look at the 0:09:29.760 --> 0:09:32.199 FED funds rate, we were far far forward, too low, 0:09:32.640 --> 0:09:35.280 and the FED needed to catch off very badly. So 0:09:35.320 --> 0:09:37.760 I think the fact they're acknowledging it, they're doing it, 0:09:37.800 --> 0:09:41.000 they're moving it is actually a positive for markets because 0:09:41.040 --> 0:09:44.040 we feel like the FED has maybe regaining some control. 0:09:44.520 --> 0:09:48.800 And then the last thing I'll say about this, the 0:09:48.880 --> 0:09:51.240 reason why the equiting markets have been so tough this 0:09:51.320 --> 0:09:54.840 year is because it was really hard to gauge the 0:09:54.840 --> 0:09:57.960 FED reaction function. They say they're trying to be balanced 0:09:58.000 --> 0:09:59.599 one week, and then they say, oh, we're going for 0:09:59.679 --> 0:10:02.079 fifty base once. Now we go for seventy five basis points. 0:10:02.080 --> 0:10:05.440 So you've got whips thought by this FED communication. But 0:10:05.559 --> 0:10:09.360 it seems like they're giving us a more explicit reaction function. 0:10:09.600 --> 0:10:13.599 The focus now is on headline inflation. If it's surprises 0:10:13.600 --> 0:10:16.560 to the upside, should expect a more aggressive path of 0:10:16.679 --> 0:10:19.320 rate hikes, and if it doesn't, perhaps they can pause. 0:10:19.480 --> 0:10:21.720 So at least we know that now, and you know, 0:10:21.920 --> 0:10:24.520 perhaps it's little constellation to the markets per se, but 0:10:24.840 --> 0:10:28.760 at least it does restore credibility in fighting inflation. But 0:10:29.120 --> 0:10:31.120 isn't there a big risk that it just doesn't work? 0:10:31.280 --> 0:10:35.440 You know that these supply chain issues continue, and that 0:10:35.600 --> 0:10:39.559 oil continues to climb higher. You know, uh, Russia appears 0:10:40.320 --> 0:10:43.880 nowhere near ready to capitulate in that war. Um, And 0:10:44.480 --> 0:10:47.960 you know what's the risk there if to the Fed's 0:10:48.000 --> 0:10:51.600 credibility and the markets in general, if you know, they 0:10:51.679 --> 0:10:55.240 keep hiking and inflation stays at if not as high 0:10:55.240 --> 0:10:59.000 as it's been, still well above target. Well, Mike, there's plenty, 0:10:59.080 --> 0:11:01.800 plenty of risk, right And you know one of the 0:11:01.840 --> 0:11:05.840 immediate risks is if you look at US gasoline prices, 0:11:05.880 --> 0:11:07.880 you know, the price you pay the pump close to 0:11:07.920 --> 0:11:09.840 five today. I think it goes it could go to 0:11:09.960 --> 0:11:13.360 six over the summertime. And frankly, there's little the FED 0:11:13.400 --> 0:11:16.800 can do about this. There's even little the Biden administration 0:11:16.840 --> 0:11:19.720 can do about this, because the reason why that's happening 0:11:19.840 --> 0:11:22.680 is it's not so much about the oil supply demand 0:11:22.679 --> 0:11:25.280 and balance. But now it's about the lack of refining 0:11:25.320 --> 0:11:28.200 capacity to actually get enough gasoline on the road. So 0:11:28.240 --> 0:11:31.600 the FED can't fix that, and you know, they tighten policy, 0:11:31.679 --> 0:11:34.800 but are people really gonna drive less? Probably not. You know, 0:11:34.840 --> 0:11:37.760 the FED cannot so, so the risk is that oil 0:11:37.800 --> 0:11:42.040 prices and gasoline prices may have to rise higher then lower. 0:11:42.800 --> 0:11:44.520 They have to rise to the point where they start 0:11:44.559 --> 0:11:47.320 to destroy demand and then they subside. You know. The 0:11:47.360 --> 0:11:51.200 other risk is with food supply shortages. Again that is 0:11:51.280 --> 0:11:54.400 not something the FED can fix. We know the bottlenecks 0:11:54.400 --> 0:11:57.040 that are coming out of Russia and Ukraine. So there's 0:11:57.120 --> 0:11:59.679 plenty of risks. But the bottom line, and I think 0:11:59.720 --> 0:12:02.480 that's why the FED has been getting more more aggressive here. 0:12:02.840 --> 0:12:06.000 They're trying to control what they can control, and that 0:12:06.240 --> 0:12:09.640 is the core parts of the inflation. It is wage inflation, 0:12:09.720 --> 0:12:12.160 and it is slowing down the exuberant in the tech 0:12:12.240 --> 0:12:15.840 sector and the crypto sector. Uh, it is about slowing 0:12:15.880 --> 0:12:18.760 down housing and boy was raped you know, close to 0:12:18.800 --> 0:12:22.400 six percent on thirty or mortgagitory. It's probably going to 0:12:22.440 --> 0:12:25.560 do it. So they're focusing on the core side of 0:12:25.559 --> 0:12:29.599 the equation. So perhaps they can counter balance the headline 0:12:29.600 --> 0:12:32.959 that they really can't control. So so if you had 0:12:32.960 --> 0:12:35.920 to sort of handicap the probability of a quote unquote 0:12:35.920 --> 0:12:40.160 soft landing, um, you know, in other words, the Fed 0:12:40.240 --> 0:12:46.120 manages to bring down inflation without triggering a recession. Where 0:12:46.160 --> 0:12:47.280 do you stand on that? What do you what do 0:12:47.280 --> 0:12:49.400 you think they're your odds are of actually being able 0:12:49.400 --> 0:12:52.200 to pull that off. Look, I think we have a chance. 0:12:52.280 --> 0:12:54.960 And perhaps that's a fifty fifty chance at this point. 0:12:55.160 --> 0:12:58.200 And I say that while the markets are really not 0:12:58.280 --> 0:13:00.480 seeing it this way now there right now pricing it 0:13:00.640 --> 0:13:04.719 close to probability of recession based on the SMB five, 0:13:05.160 --> 0:13:06.840 based on the credit spreads, but when you look at 0:13:06.840 --> 0:13:09.719 the economic indicators that the same imply probability of a 0:13:09.800 --> 0:13:13.120 recession is about for you. But I think we have 0:13:13.360 --> 0:13:15.800 to give ourselves a chance here. And I want to 0:13:15.880 --> 0:13:19.920 draw some parallels to nine four that at the seventy 0:13:19.960 --> 0:13:23.239 five basis point rate hike, you know, that had aggressive 0:13:23.280 --> 0:13:25.320 moves hired rates, and yet if you look at the 0:13:25.440 --> 0:13:29.880 gdp UH during that time frame, it didn't actually go negative. 0:13:30.120 --> 0:13:34.000 It slowed down from five percent to two percent. And 0:13:34.080 --> 0:13:37.400 that's sort of what the forecasts are calling for now, 0:13:37.840 --> 0:13:40.400 you know, we're going from two point seven percent GDP 0:13:40.520 --> 0:13:43.320 this quarter or next maybe at one point seven next year. 0:13:43.800 --> 0:13:46.240 Is that a recession or is it a tought landing. 0:13:47.000 --> 0:13:49.679 You know, there, of course many ways to define a recession, 0:13:49.679 --> 0:13:51.760 and you know, some people think of it in terms 0:13:51.800 --> 0:13:54.640 of sequential slow down, but I think a more proper 0:13:54.679 --> 0:13:58.480 way is to say negative GDP growth and several quarters 0:13:58.520 --> 0:14:02.320 of it. And I don't know that that's exactly where 0:14:02.320 --> 0:14:06.160 we're headed, because what really takes to cause a true 0:14:06.360 --> 0:14:09.800 deep recession is a lot of imbalances. I think back 0:14:09.800 --> 0:14:12.520 to the financial crisis. We had the mortgage debt, we 0:14:12.559 --> 0:14:14.720 had the consumer debt, we had the corporate debt. We 0:14:15.080 --> 0:14:17.120 have had the financials levered up, and we had all 0:14:17.160 --> 0:14:21.080 the video squared. And when I think about those counter 0:14:21.160 --> 0:14:24.760 parties today, we don't have the same degree of imbalances. 0:14:24.840 --> 0:14:27.360 So that's why I'm still in a camp of a 0:14:27.480 --> 0:14:31.200 slow down for sure, but perhaps not the inn our recession. 0:14:32.280 --> 0:14:34.440 I know that after the FED meeting, I had read 0:14:34.480 --> 0:14:37.600 a bunch of notes that that we're sort of looking 0:14:37.640 --> 0:14:40.680 through Paul's comments and a lot of the takeaways were 0:14:41.120 --> 0:14:44.120 the some of the stuff he was saying was a 0:14:44.160 --> 0:14:48.160 bit contradictory. So we got the comments about the next meeting, 0:14:48.200 --> 0:14:51.640 the July meeting could be either fifty or could be 0:14:51.720 --> 0:14:55.680 seventy five basis point hikes. So how do you pass 0:14:55.760 --> 0:14:57.160 through this and how do you make sense of it? 0:14:57.200 --> 0:14:59.720 Like what is your your takeaways in terms of some 0:14:59.800 --> 0:15:02.160 of a contradictory things that we did hear from the 0:15:02.160 --> 0:15:07.160 FT this week. It's really tough to admit for anybody, 0:15:07.240 --> 0:15:09.840 for everybody, including a FT your pal, but we don't 0:15:09.840 --> 0:15:12.280 have a crystal ball. The FED does not have the 0:15:12.360 --> 0:15:15.200 crystal ball and inflation, and I think we have all 0:15:15.240 --> 0:15:19.080 collectively as investors, as policy makers, we have capitulated to 0:15:19.120 --> 0:15:22.480 this view that we just don't know what the next 0:15:22.520 --> 0:15:25.840 inflation print is going to look like. We're across our fingers. 0:15:25.920 --> 0:15:27.880 We hope it's lower than it was the month before, 0:15:27.920 --> 0:15:31.320 but the reality is we don't know. So the reason why, 0:15:31.720 --> 0:15:34.080 you know, perhaps we have this I mean, I call 0:15:34.160 --> 0:15:37.160 it choppy and a little bit sloppy policy from the 0:15:37.200 --> 0:15:41.280 Fed is because they truly don't know um, but they 0:15:41.280 --> 0:15:44.000 are preparing the markets for you know, the potential for 0:15:44.040 --> 0:15:46.960 seventi five basis points. I think that's constructive because that's 0:15:47.000 --> 0:15:51.440 what's becoming priced in. But here's what I say, voll Donna, 0:15:51.600 --> 0:15:53.960 is when you look at the aquadum markets and you 0:15:53.960 --> 0:15:56.440 have a FED that doesn't have a crystal ball and 0:15:56.600 --> 0:15:59.360 they're having to adjust to the absence blows of inflation, 0:15:59.760 --> 0:16:03.240 that is going to create for this lack of predictability, 0:16:03.440 --> 0:16:05.520 and as you know, that's not good for markets. That's 0:16:05.600 --> 0:16:08.560 an environment in which the markets struggle. And that's why 0:16:08.560 --> 0:16:10.920 it's so hard to make a call on any sort 0:16:10.920 --> 0:16:13.320 of bottom, and it's so hard to make a call 0:16:13.360 --> 0:16:15.360 on any sort of buy the dip for this tactical 0:16:15.400 --> 0:16:19.200 short term rally. It's just not the environment we're in today, 0:16:19.520 --> 0:16:21.400 you know. And it says you mentioned that notion of 0:16:21.960 --> 0:16:25.600 sixty forty being under so much pressure this year, you know, 0:16:25.680 --> 0:16:29.160 both both stocks and bonds just having an awful year. 0:16:29.200 --> 0:16:32.520 I looked at the Bloomberg Treasury Index. I think it's 0:16:33.040 --> 0:16:37.360 basically the worst year the treasury markets ever had. You know. Uh, 0:16:37.680 --> 0:16:42.800 But has this correction or bear market in both asset 0:16:42.840 --> 0:16:46.520 classes sort of made sixty forty look look attractive again? 0:16:46.560 --> 0:16:48.760 Do you think where is there still worth trying to 0:16:49.360 --> 0:16:53.000 to shoehorn in some alternatives into that space. Well, I 0:16:53.720 --> 0:16:58.280 think the answer to the two part question is yes 0:16:59.080 --> 0:17:02.800 to both of those things. I do think that we're 0:17:02.840 --> 0:17:06.080 approaching some interesting levels on both docks and bonds. And 0:17:06.119 --> 0:17:09.119 we're not calling bottoms here, but one thing that we 0:17:09.160 --> 0:17:11.359 can say we're now excited about in this environment, you 0:17:11.359 --> 0:17:14.440 can actually get paid in the safest of assets, which 0:17:14.440 --> 0:17:16.320 is the triple A rate at U S. Treasury. You 0:17:16.359 --> 0:17:18.639 can get paid three point three percent on a two 0:17:18.760 --> 0:17:21.200 year treasury not give or take. You know, if the 0:17:21.320 --> 0:17:23.399 terminal rate does in fact go to zero, you know, 0:17:23.440 --> 0:17:26.800 maybe the yield does inch towards zero. That's exciting. What 0:17:27.040 --> 0:17:29.560 was the last time you could get that safety asset 0:17:30.080 --> 0:17:33.320 um with that sort of yield. So in this environment 0:17:33.320 --> 0:17:37.439 where investors grave certainty, grave safety, I think it's a 0:17:37.560 --> 0:17:40.560 really interesting thing to be adding back to your port 0:17:40.560 --> 0:17:45.360 folio in terms of sporting um. On the equity levels, 0:17:45.520 --> 0:17:49.040 I think at some point you have to wonder if 0:17:49.160 --> 0:17:51.840 enough has been priced in as well. I don't think 0:17:51.880 --> 0:17:54.439 equities are screaming by yet, and I'll explain that in 0:17:54.520 --> 0:17:57.760 just a minute. But if you think about that, of 0:17:57.760 --> 0:18:00.840 the recession probability has already been priced it. So even 0:18:00.840 --> 0:18:02.639 if we do have a recession, we probably stay in 0:18:02.720 --> 0:18:05.840 a pretty good chunk of it, so perhaps you may 0:18:05.880 --> 0:18:11.159 be able to step in and added crementially um for 0:18:11.400 --> 0:18:14.359 in order for it to be a screaming by. I 0:18:14.400 --> 0:18:16.639 think we do have some further room to go in 0:18:16.720 --> 0:18:20.000 terms of multiple correction. You know where sixteen times forward earnings, 0:18:20.000 --> 0:18:22.359 we probably have to step it down to fourteen times 0:18:22.400 --> 0:18:25.359 forward earnings and assuming the earnings whole, two d thirty 0:18:25.400 --> 0:18:27.600 five on the SMP five hunter and that gets you 0:18:27.640 --> 0:18:31.399 to about the SMP so we could still take another 0:18:31.680 --> 0:18:35.280 you know, well thirteen lower like from here, so at 0:18:35.320 --> 0:18:37.680 that point that would be screaming by by the bottom line, 0:18:37.720 --> 0:18:40.040 the answer to the first party of question is we 0:18:40.119 --> 0:18:43.400 are approaching some interesting levels in which you may want 0:18:43.440 --> 0:18:46.439 to add back to the sixty and the forty. But 0:18:46.960 --> 0:18:49.560 the other part of your question is this still a 0:18:49.680 --> 0:18:52.159 good time to be an alternative? I mean, frankly, I 0:18:52.200 --> 0:18:54.360 think it's always a good time to be an alternatives 0:18:54.400 --> 0:18:57.680 because you just have these extra levels to pool um. 0:18:57.720 --> 0:19:00.440 We talked about hedge funds and how they are delivering 0:19:00.440 --> 0:19:03.439 the value in this environment, but think about private credit. 0:19:04.040 --> 0:19:06.040 If you look at private credit, most of that is 0:19:06.160 --> 0:19:08.720 floating rate and an environment where the FED keeps on 0:19:08.800 --> 0:19:11.199 hiking and hiking, that's the place you want to be. 0:19:12.080 --> 0:19:15.119 And then the thing that I really like about credit 0:19:15.400 --> 0:19:19.439 is it's a liquid which means it doesn't trade on 0:19:19.560 --> 0:19:23.560 technical market dynamics. So when dealers pull back the inventory 0:19:23.680 --> 0:19:25.640 and you have a number of cells and high yield 0:19:25.640 --> 0:19:28.000 and leverage loans, that's not the case in private credit. 0:19:28.280 --> 0:19:30.840 So as a result, you end up which a much 0:19:31.080 --> 0:19:34.439 smoother path of returns in private credit versus let's say 0:19:34.480 --> 0:19:37.080 hi yield. So I think that's still a very interesting 0:19:37.119 --> 0:19:40.760 place in private equity, I would say, you know, for 0:19:40.840 --> 0:19:43.480 vintages that have been invested in the last couple of years, 0:19:43.480 --> 0:19:45.040 of course, this is going to be a tough environment 0:19:45.080 --> 0:19:48.040 for returns in the next couple of quarters or maybe 0:19:48.040 --> 0:19:51.320 a couple of years as a valuation subside. But if 0:19:51.359 --> 0:19:53.840 you're a new investor in private equity and if you're 0:19:53.840 --> 0:19:56.960 allocating fresh capital, now, guess what that's going to be 0:19:57.040 --> 0:20:00.720 deployed at lower valuations that were likely see over the 0:20:00.760 --> 0:20:03.240 next couple of quarters for a couple of years. So 0:20:03.600 --> 0:20:06.439 I think a lot of investors should be thinking about 0:20:06.520 --> 0:20:10.000 this as an opportunity to commit that lawn term capital 0:20:10.119 --> 0:20:14.159 now to invest it later those lower valuations. So I 0:20:14.240 --> 0:20:18.679 definitely think there's room for both. Um, you know, not 0:20:18.760 --> 0:20:21.520 quite declaring the market bottom here and not quite saying 0:20:21.520 --> 0:20:24.520 equities are cheap. But I think a combination of all 0:20:24.560 --> 0:20:27.359 of those dogs, bonds and alternatives that's what makes it 0:20:27.440 --> 0:20:35.640 for better outcome. Well, speaking of the clearing a market 0:20:35.680 --> 0:20:37.399 bottom or not, I know you had sent us some 0:20:37.880 --> 0:20:40.400 notes before we started the podcast, and I just want 0:20:40.400 --> 0:20:42.800 to read one of the quotes that says, at current levels, 0:20:42.960 --> 0:20:46.199 we would not be meaningfully increasing equity allocations until we 0:20:46.240 --> 0:20:50.160 have seen more evidence of inflation slowing and economic slowdown 0:20:50.240 --> 0:20:53.639 flattening out, and importantly the FED shifting it's hawkish tone, 0:20:53.800 --> 0:20:56.080 which to me it struck me as sort of these 0:20:56.119 --> 0:20:59.879 things sort of being a really long time off. So 0:21:00.640 --> 0:21:03.680 if somebody wanted to deploy some some cash right now, 0:21:03.720 --> 0:21:06.520 what would you be telling them in terms of where 0:21:06.560 --> 0:21:09.840 to put it? Yeah? Yeah, So, first of all, I 0:21:09.880 --> 0:21:13.440 mean a long time it's interesting that common is interesting, 0:21:13.600 --> 0:21:16.200 and you know, things tend to move quicker in these 0:21:16.200 --> 0:21:18.640 markets than they have in prior years, So I could 0:21:18.680 --> 0:21:22.439 actually see a scenario that over the next quarter or 0:21:22.520 --> 0:21:26.119 two we could be on that you know, other side 0:21:26.240 --> 0:21:28.960 always slow down, and on the FED that is pausing. 0:21:29.280 --> 0:21:31.480 I mean, if you think about just basic GDP forecast, 0:21:31.560 --> 0:21:34.520 but this quarter, next quarter, we're anticipating two point seven percent. 0:21:34.760 --> 0:21:37.440 By Q four this year, that's going to step it 0:21:37.480 --> 0:21:39.639 down to one point seven percent. And that's sort of 0:21:39.640 --> 0:21:41.639 what the FED expects for next year as well. So 0:21:41.680 --> 0:21:44.480 by Q four we might actually have seen a slow 0:21:44.520 --> 0:21:47.440